MISONIX, INC. This Management's Discussion and Analysis of Financial Condition and Results of
Operations of
Forward Looking Statements
With the exception of historical information contained in this Form 10-Q,
content herein may contain "forward looking statements" that are made pursuant
to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995. These statements are based on management's current expectations and are
subject to uncertainty and changes in circumstances. Investors are cautioned
that forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from the statements made. These factors
include general economic conditions, the impact of COVID-19, or other pandemics,
including the potential effects of new strains of the virus and any increased
rates in infection, vaccine roll-out globally and the efficacy of such vaccines,
and the impact of related governmental, individual and business responses. This
includes our ability to obtain or forecast accurate surgical procedure volume in
the midst of the COVID-19 pandemic; the risk that the COVID-19 pandemic could
lead to further material delays and cancellations of, or reduced demand for,
surgical or wound care procedures; curtailed or delayed capital spending by
hospitals and surgical centers; potential closures of our facilities; delays in
gathering clinical evidence; diversion of management and other resources to
respond to the COVID-19 outbreak; the impact of global and regional economic and
credit market conditions on healthcare spending; the risk that the COVID-19
virus disrupts local economies and causes economies in our key markets to enter
prolonged recessions; the ability of our staff to travel to work, our ability to
maintain adequate inventories and delivery capabilities, the impact on our
customers and supply chain, and the impact on demand in general. These
forward-looking statements are also subject to uncertainties and change
resulting from delays and risks associated with the performance of contracts;
risks associated with international sales and currency fluctuations;
uncertainties as a result of research and development; acceptable results from
clinical studies, including publication of results and patient/procedure data
with varying levels of statistical relevancy; risks involved in introducing and
marketing new products, potential acquisitions, consumer and industry
acceptance, litigation and/or court proceedings, including the timing and
monetary requirements of such activities, the timing of finding strategic
partners and implementing such relationships; regulatory risks including
clearance of pending and/or contemplated 510(k) filings; our ability to achieve
and maintain profitability in the our business lines, access to capital, and
other factors discussed in our Annual Report on Form 10-K for the fiscal year
ended
18
Acquisition of
On
Overview
We design, manufacture, market, sell and distribute minimally invasive surgical ultrasonic medical devices. These products are used for precise bone sculpting, removal of soft and hard tumors, and tissue debridement, primarily in the areas of neurosurgery, orthopedic surgery, plastic surgery, wound care and maxillo-facial surgery. We also exclusively market, sell and distribute skin allografts and wound care products used to support healing of wounds, and which complement our ultrasonic medical devices.
We strive to have our proprietary procedural solutions become the standard of care and enhance patient outcomes throughout the world. We intend to accomplish this, in part, by utilizing our best-in-class surgical ultrasonic technology to improve patient outcomes in spinal surgery, neurosurgery and wound care. Our neXus generator combines the capabilities of our three legacy ultrasonic products into a single system that can be used to perform soft and hard tissue resections. We also continue to market and sell these legacy ultrasonic products, which are:
? BoneScalpel Surgical System, or BoneScalpel, which is used for surgical
procedures involving the precise cutting and sculpting of bone while sparing
soft tissue. BoneScalpel is now recognized by many surgeons globally as a
critical surgical tool enabling improved patient outcomes in the spine surgery
arena.
? SonaStar Surgical Aspirator, or SonaStar, which is used to emulsify and remove
soft and hard tumors, primarily in the neuro and general surgery fields.
? SonicOne Wound Debridement System, or SonicOne, which offers tissue specific
debridement and cleansing of wounds and burns for effective removal of
devitalized tissue and fibrin deposits while sparing viable cells.
These devices primarily serve the following clinical specialties: neurosurgery, orthopedic surgery, general surgery, plastic surgery, wound care and maxillo-facial surgery.
Each of our medical device systems consist of a proprietary console and handpiece that function to convert electrical current into ultrasonic energy, ultimately delivered via a disposable titanium tip, to produce a therapeutic effect.
neXus®
neXus is a next generation integrated ultrasonic surgical platform that combines all the features of our existing solutions, including BoneScalpel, SonicOne and SonaStar, into a single fully integrated platform that will also serve to power future solutions. The neXus platform is driven by a new proprietary digital algorithm that results in more power, efficiency, and control. The device incorporates Smart Technology that allows for easier setup and use.
neXus' increased power improves tissue resection rates for both soft and hard
tissue removal making it a unique surgical platform for a variety of different
surgical specialties. In addition, neXus' ease of use enables physicians to
fully leverage neXus' impressive set of capabilities via its digital touchscreen
display and smart system setup. Our current ultrasonic applications, which are
BoneScalpel, SonaStar and SonicOne, all work on the neXus generator. This allows
a hospital to access all of our product offerings on this all in one console. We
principally sell neXus in
BoneScalpel®
The BoneScalpel is a state of the art, ultrasonic bone cutting and sculpting system capable of enabling precise cuts with minimal necrosis, minimal burn artifact, minimal inflammation and minimal bone loss. The device is also capable of preserving surrounding soft tissue structures because of its ability to differentiate soft tissue from rigid bone. This device can make precise linear or curved cuts, on any plane, with precision not normally associated with powered instrumentation. We believe that BoneScalpel offers the speed and convenience of a powered instrument without the dangers associated with conventional rotary devices. The effect on surrounding soft tissue is minimal due to the elastic and flexible structure of healthy tissue. This is a significant advantage in anatomical regions like the spine where patient safety is of primary concern. In addition, the linear motion of the blunt, tissue-impacting tips avoids accidental 'trapping' of soft tissue while largely eliminating the high-speed spinning and tearing associated with rotary power instruments. The BoneScalpel allows surgeons to improve on existing surgical techniques by creating new approaches to bone cutting and sculpting and removal, leading to substantial time-savings and increased operation efficiencies.
SonaStar®
The SonaStar System provides powerful and precise aspiration following the ultrasonic ablation of soft tissue. The SonaStar has been used for a wide variety of surgical procedures applying both open and minimally invasive approaches, including neurosurgery and general surgery. The SonaStar may also be used with OsteoSculpt® probe tips, which enable the precise shaping or shaving of bony structures that prevent open access to partially or completely hidden soft tissue masses.
19 SonicOne®
The SonicOne Ultrasonic Cleansing and Debridement System is a highly innovative, tissue specific approach for the effective removal of devitalized or necrotic tissue and fibrin deposits while sparing viable, surrounding cellular structures. The tissue specific capability is, in part, due to the fact that healthy and viable tissue structures have a higher elasticity and flexibility than necrotic tissue and are more resistant to destruction from the impact effects of ultrasound. The ultrasonic debridement process separates devitalized tissue from viable tissue layers, allowing for a more defined treatment and, usually, a reduced pain sensation. We believe that SonicOne establishes a new standard in wound bed preparation, the essential first step in the healing process, while contributing to a faster patient healing.
TheraSkin®
TheraSkin is a biologically active human skin allograft that has all of the
relevant characteristics of human skin needed to heal wounds, including living
cells, growth factors, and a collagen matrix. TheraSkin is derived from human
skin tissue from consenting and highly screened donors and is regulated by the
FDA as a Human Cells, Tissues, and Cellular and Tissue-Based Product. LifeNet
processes and supplies TheraSkin to us under a supply and distribution agreement
that gives us exclusive rights to sell TheraSkin in
Therion®
Therion is indicated for use as a cover and barrier for homologous use for wound
care and surgical procedures. Therion is a dehydrated and terminally sterilized
chorioamniotic allograft derived from human placental membrane and is regulated
by the FDA as a Human Cells, Tissues, and Cellular and Tissue-Based Product.
CryoLife processes and supplies Therion to us under a supply and distribution
agreement that gives us exclusive rights to distribute the product in
TheraGenesis®
TheraGenesis is a Bilayer Wound Matrix and Meshed Bilayer Wound Matrix
consisting of a porcine collagen sponge layer and a silicone film layer that
provides a scaffold for cellular invasion and capillary growth for management of
wounds including partial and full-thickness wounds, chronic wounds, surgical
wounds, trauma wounds and draining wounds. We obtain TheraGenesis under an
exclusive supply and distribution agreement with Gunze Limited that gives us
exclusive rights to distribute the product in
Sales and Distribution; Reportable Segments
In
We manufacture and sell our products in two global reportable business segments: the Surgical segment and the Wound segment. Our sales force also operates as two segments, Surgical and Wound Care.
Impact of COVID-19 Pandemic
In March of 2020, the
We continue to execute on our business continuity plans and our crisis
management response to address the challenges related to the COVID-19 pandemic.
Since March, our headquarters have remained open, however, many of our employees
have been working from home, with only certain essential employees not working
remotely. For employees
Our sales teams are focused on how to meet changing needs of our customers in this environment.
As a result of the COVID-19 pandemic, we experienced a disruption to our global
supply chain of our products and a decrease in sales due to a decrease in
elective surgical procedures, as described in more detail below. While this
disruption began to alleviate during the quarter ended
20
Due to these effects and measures, we have experienced and may continue to
experience significant and unpredictable reductions in the demand for our
products as healthcare customers diverted medical resources and priorities
towards the treatment of that disease. In addition, our customers may delay,
cancel, or redirect planned capital expenditures in order to focus resources on
COVID-19 or in response to economic disruption related to COVID-19. For example,
as mentioned above, we have experienced and may continue to experience a
significant decline in procedure volume in the
Capital markets and worldwide economies have also been significantly impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic recession could have a material adverse effect on our long-term business as hospitals and surgical centers curtail and reduce capital and overall spending. The COVID-19 pandemic and local actions, such as "shelter-in-place" orders and restrictions on our salesforce's ability to travel and access our customers or temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers, could further significantly reduce our sales and our ability to ship our products and supply our customers. We are continuing to monitor closely indications that several jurisdictions are experiencing new increases in the rate of infection by COVID-19, which could result in further mitigation efforts, the impact of these new increases on all aspects of our business and geographies, including its impact on our customers, employees, suppliers, business partners, and distribution channels. Any of these events could negatively impact the number of surgical procedures performed using our products and have a material adverse effect on our business, financial condition, results of operations, or cash flows. There are certain limitations on our ability to mitigate the adverse financial impact of these items, including the fixed costs of our businesses. COVID-19 also makes it more challenging for us to estimate the future performance of our businesses, particularly over the near to medium term. As a response to the ongoing COVID-19 pandemic, we have implemented plans to manage our costs. To the extent the business disruption continues for an extended period, additional cost reductions will be considered.
The extent to which the COVID-19 global pandemic impacts our business, results
of operations, and financial condition will depend on future developments, which
are highly uncertain and are difficult to predict; these developments include,
but are not limited to, the duration and spread of the outbreak, its severity,
the actions taken to contain the virus or address its impact including vaccine
distribution and efficacy,
For more information, see "Item 1A. Risk Factors" in our 2020 Form 10-K - "Our business and operations could be adversely affected by health epidemics, such as the recent COVID-19 pandemic, impacting the markets and communities in which we and our customers operate" and "The COVID-19 global pandemic has disrupted our operations and if we are unable to re-commence normal operations in the near-term, we may be out of compliance with certain covenants in our debt facilities."
Impact of Coronavirus Aid, Relief, and Economic Security Act
The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was
enacted in
On
Other than as outlined above, we do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity. We will continue to monitor and assess the impact the CARES Act may have on our business and financial results.
21 Results of Operations
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto appearing elsewhere herein.
Three months ended
Our revenues by category for the three months ended
For the three months ended
March 31, Net change
2021 2020 $ %
Total
Surgical $ 10,351,130 $ 9,102,711 $ 1,248,419 13.7 %
Wound 7,996,050 8,799,801 (803,751 ) -9.1 %
Total $ 18,347,180 $ 17,902,512 $ 444,668 2.5 %
Domestic:
Surgical $ 6,940,825 $ 6,052,548 $ 888,277 14.7 %
Wound 7,872,060 8,725,868 (853,808 ) -9.8 %
Total $ 14,812,885 $ 14,778,416 $ 34,469 0.2 %
International:
Surgical $ 3,410,305 $ 3,050,163 $ 360,142 11.8 %
Wound 123,990 73,933 50,057 67.7 %
Total $ 3,534,295 $ 3,124,096 $ 410,199 13.1 %
Revenues
Total revenue increased 2.5%, or
The revenue increase is principally attributable to a
Gross profit
Gross profit in the third quarter of fiscal 2021 was 70.6% of revenue, consistent with the 70.3% gross profit margin recorded in the third quarter of fiscal 2020.
Selling expenses
Selling expenses decreased by
General and administrative expenses
General and administrative expenses decreased by
Research and development expenses
Research and development expenses decreased by
Income taxes
There was no income tax expense or benefit for the three months ended
22
Nine months ended
Our revenues by category for the nine months ended
For the nine months ended
March 31, Net change
2021 2020 $ %
Total
Surgical $ 29,569,718 $ 28,702,566 $ 867,152 3.0 %
Wound 24,769,214 20,067,853 4,701,361 23.4 %
Total $ 54,338,932 $ 48,770,419 $ 5,568,513 11.4 %
Domestic:
Surgical $ 19,927,462 $ 16,819,950 $ 3,107,512 18.5 %
Wound 24,454,340 19,762,087 4,692,253 23.7 %
Total $ 44,381,802 $ 36,582,037 $ 7,799,765 21.3 %
International:
Surgical$ 9,642,256 $ 11,882,616 $ (2,240,360 ) -18.9 % Wound 314,874 305,766 9,108 3.0 % Total$ 9,957,130 $ 12,188,382 $ (2,231,252 ) -18.3 % Revenues
Total revenue increased 11.4%, or
The revenue increase is principally attributable to the increase of
Gross profit
Gross profit in the first three quarters of fiscal 2021 was 71.0% of revenue, slightly higher than the 70.3% gross profit margin recorded in the first three quarters of fiscal 2020, due to shifts in product mix and the mix of domestic and international revenues.
Selling expenses
Selling expenses increased by
General and administrative expenses
General and administrative expenses decreased by
Research and development expenses
Research and development expenses decreased by
Income taxes
For the nine months ended
The acquisition of Solsys resulted in the recognition of deferred tax
liabilities of approximately
23
Liquidity and Capital Resources
General
Our liquidity position and capital requirements may be impacted by a number of factors, including the following:
? our ability to generate revenue, including a potential decline in revenue
resulting from COVID-19;
? fluctuations in gross margins, operating expenses and net loss; and
? fluctuations in working capital.
Our primary short-term capital needs, which are subject to change, include expenditures related to:
? expansion of our sales, marketing and distribution activities; ? expansion of our research and development activities; and ? maintaining sufficient inventory to supply our sales volume.
Nine Month Period Ending
Working capital at
Cash used by investing activities during the nine-month period ended
Cash used by financing activities during the nine-months period ended
We have
As of
We have also been actively monitoring the global outbreak and spread of COVID-19 and taking steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts. We are focused on navigating these recent challenges presented by the COVID-19 global pandemic through preserving our liquidity and managing our cash flow through taking preemptive action to enhance our ability to meet our short-term liquidity needs. We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because we have never previously experienced this type of disruption to our operations, and as a consequence, our ability to be predictive is uncertain.
Nine Month Period Ending
As of
Working capital at
Cash provided by investing activities at
Cash provided by financing activities at
Financing Transactions
See Note 12 to our Condensed Consolidated Financial Statements included herein for a summary of our financing transactions.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to us.
24 Other
In the opinion of management, inflation has not had a material effect on our operations.
Recent Accounting Pronouncements
See Note 1 to our Condensed Consolidated Financial Statements included herein.
Critical Accounting Policies
The preparation of financial statements in conformity with
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